global construction material

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Global Construction Materials - Competitive Landscape OHCL1529

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Global Construction Materials - Competitive

Landscape

Reference Code: OHCL1529

EXECUTIVE SUMMARY


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EXECUTIVE SUMMARY

Market value

The global construction materials market grew by 1.8% in 2009 to reach a value of $539.3 billion.

Market value forecast

In 2014, the global construction materials market is forecast to have a value of $823.3 billion, an increase of 52.7% since 2009.

Market segmentation I

Brick is the largest segment of the global construction materials market, accounting for 27.9% of the market's total value.

Market segmentation II

Asia-Pacific accounts for 70.6% of the global construction materials market value.

Market rivalry

Recent decelerated growth intensifies rivalry between market players in the construction materials market. Market players are similar in nature and have little opportunity for diversification, which serves to increase rivalry further.

TABLE OF CONTENTS


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TABLE OF CONTENTS

EXECUTIVE SUMMARY 2

MARKET OVERVIEW 7

Market definition 7 Research highlights 7 Market analysis 8

MARKET VALUE 9

MARKET SEGMENTATION I 10

MARKET SEGMENTATION II 11

FIVE FORCES ANALYSIS 12

Summary 12 Buyer power 14 Supplier power 15 New entrants 17 Substitutes 18 Rivalry 19

LEADING COMPANIES 20

CRH plc 20 CEMEX, S.A. de C.V. 49 Holcim Ltd. 78 Lafarge S.A. 110

MARKET FORECASTS 152

Market value forecast 152 APPENDIX 153

Methodology 153 Related Datamonitor research 154 Disclaimer 155

ABOUT DATAMONITOR 156

Premium Reports 156

TABLE OF CONTENTS


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Summary Reports 156 Datamonitor consulting 156

LIST OF TABLES


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LIST OF TABLES Table 1: Global construction materials market value: $ billion, 2005–09 9

Table 2: Global construction materials market segmentation I:% share, by value, 2009 10

Table 3: Global construction materials market segmentation II: % share, by value, 2009 11

Table 4: CRH plc Key Facts 20

Table 5: Key Employees 27

Table 6: CRH plc SWOT Analysis 36

Table 7: CEMEX, S.A. de C.V. Key Facts 49


Table 9: CEMEX, S.A. de C.V. SWOT Analysis 65

Table 10: Holcim Ltd. Key Facts 78


Table 12: Key Employees(Table Continued…) 84

Table 13: Holcim Ltd. SWOT Analysis 95

Table 14: Lafarge S.A. Key Facts 110


Table 16: Key Employees(Table Continued…) 119

Table 17: Lafarge S.A. SWOT Analysis 137

Table 18: Global construction materials market value forecast: $ billion, 2009–14 152

LIST OF FIGURES


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LIST OF FIGURES Figure 1: Global construction materials market value: $ billion, 2005–09 9

Figure 2: Global construction materials market segmentation I:% share, by value, 2009 10

Figure 3: Global construction materials market segmentation II: % share, by value, 2009 11

Figure 4: Forces driving competition in the global construction materials market, 2009 12

Figure 5: Drivers of buyer power in the global construction materials market, 2009 14

Figure 6: Drivers of supplier power in the global construction materials market, 2009 15

Figure 7: Factors influencing the likelihood of new entrants in the global construction materials market, 2009 17

Figure 8: Factors influencing the threat of substitutes in the global construction materials market, 2009 18

Figure 9: Drivers of degree of rivalry in the global construction materials market, 2009 19

Figure 10: Global construction materials market value forecast: $ billion, 2009–14 152

MARKET OVERVIEW


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MARKET OVERVIEW

Market definition

The construction materials market includes all manufacturers of sand, gravel, aggregates, cement, concrete and bricks. The market does not include other finished or semi-finished building materials. The market has been valued at manufacturers selling price (MSP). Any currency conversions used in the creation of this report have been generated using constant 2009 annual average exchange rates.

For the purposes of this report, the global market consists of North America, South America, Western Europe, Eastern Europe, and Asia-Pacific.

North America consists of Canada, Mexico, and the United States.

South America comprises Argentina, Brazil, Chile, Colombia, and Venezuela.

Western Europe comprises Belgium, Denmark, France, Germany, Italy, the Netherlands, Norway, Spain, Sweden, and the United Kingdom.

Eastern Europe comprises the Czech Republic, Hungary, Poland, Romania, Russia, and Ukraine.

Asia-Pacific comprises Australia, China, India, Japan, Singapore, South Korea, and Taiwan.

Research highlights

The global construction materials market generated total revenues of $539.3 billion in 2009, representing a compound annual growth rate (CAGR) of 5% for the period spanning 2005-2009.

The Brick segment was the market's most lucrative in 2009, generating total revenues of $150.3 billion, equivalent to 27.9% of the market's overall value.

The performance of the market is forecast to accelerate, with an anticipated CAGR of 8.8% for the five-year period 2009-2014, which is expected to drive the market to a value of $823.3 billion by the end of 2014.

MARKET OVERVIEW


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Market analysis

The global construction materials market has experienced healthy growth in recent years. But in 2009 the growth rate dropped to 1.8 %. However, the outlook is positive with growth forecasted to accelerate over the coming years, beyond the rates from previous years.

The global construction materials market generated total revenues of $539.3 billion in 2009, representing a compound annual growth rate (CAGR) of 5% for the period spanning 2005-2009. In comparison, the European and Asia-Pacific markets grew with CAGRs of 2.5% and 6.4% respectively, over the same period, to reach respective values of $84.7 billion and $380.5 billion in 2009.

The Brick segment was the market's most lucrative in 2009, generating total revenues of $150.3 billion, equivalent to 27.9% of the market's overall value. The Cement segment contributed revenues of $147.2 billion in 2009, equating to 27.3% of the market's aggregate revenues.

The performance of the market is forecast to accelerate, with an anticipated CAGR of 8.8% for the five-year period 2009-2014, which is expected to drive the market to a value of $823.3 billion by the end of 2014. Comparatively, the European and Asia-Pacific markets will grow with CAGRs of 6.4% and 10% respectively, over the same period, to reach respective values of $115.2 billion and $613 billion in 2014.

MARKET VALUE


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MARKET VALUE

The global construction materials market grew by 1.8% in 2009 to reach a value of $539.3 billion.

The compound annual growth rate of the market in the period 2005–09 was 5%.

Table 1: Global construction materials market value: $ billion, 2005–09 Year $ billion € billion % Growth2005 444.1 319.4 2006 470.2 338.1 5.9%2007 502.8 361.6 6.9%2008 529.7 380.9 5.3%2009 539.3 387.8 1.8%

CAGR: 2005–09 5.0%

Source: Datamonitor D A T A M O N I T O R

Figure 1: Global construction materials market value: $ billion, 2005–09


MARKET SEGMENTATION I


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MARKET SEGMENTATION I

Brick is the largest segment of the global construction materials market, accounting for 27.9% of the market's total value.

The cement segment accounts for a further 27.3% of the market.

Table 2: Global construction materials market segmentation I:% share, by value, 2009 Category % ShareBrick 27.9%Cement 27.3%Aggregates 25.9%Sand & Gravel 17.4%Other 1.5%

Total 100%


Figure 2: Global construction materials market segmentation I:% share, by value, 2009


MARKET SEGMENTATION II


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MARKET SEGMENTATION II

Asia-Pacific accounts for 70.6% of the global construction materials market value.

Europe accounts for a further 15.7% of the global market.

Table 3: Global construction materials market segmentation II: % share, by value, 2009 Category % ShareAsia-Pacific 70.6%Europe 15.7%Americas 13.7%

Total 100%


Figure 3: Global construction materials market segmentation II: % share, by value, 2009


FIVE FORCES ANALYSIS


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The construction materials market will be analyzed taking manufacturers of construction materials as players. The key buyers will be taken as construction companies and DIY home improvement end-users (in small quantity), and quarries and mining companies, integrated energy companies, heavy machineries companies as the key suppliers.

Summary

Figure 4: Forces driving competition in the global construction materials market, 2009




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Recent decelerated growth intensifies rivalry between market players in the construction materials market. Market players are similar in nature and have little opportunity for diversification, which serves to increase rivalry further.

The construction materials market has been hit by the recent economic downturn demonstrated by decelerated growth rates in FY2009. The market is not likely to see any improvement in revenues for at least another year. The nonresidential construction market, which provided some support to overall construction market during the past two years, is expected to decline during 2009 – 2010 and is not expected to recover until 2011. Public construction market revenues are also expected to decline slightly during 2009-2010. The recession, directly hit upon construction materials demand. The large number of buyers in the construction materials market means that buyer power is prevented from becoming a disproportionately strong force here.

The main suppliers to this industry are relatively large-scale energy companies, such as Exxon Mobil Corporation, Sinopec and Scottish Power, and their strong negotiation and financial position increases supplier power. The level of rivalry in the global construction materials market has been intensified by recent revenue decreases. This steep fall also means that the construction materials market is less attractive for newcomers.



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Buyer power

Figure 5: Drivers of buyer power in the global construction materials market, 2009


The construction industry in many regions is fragmented, although there are some larger players present. This situation means that players can sell to a large number of relatively small buyers and, under these circumstances, buyer power is relatively low. The fact that building materials are vital to the operations of construction companies also weakens buyer power in this market. However, the majority of building materials, such as cement and bricks, cannot be differentiated effectively, especially in certain regions where the usage of different materials may be less effective, and in such case players in this market must compete for a share of the market’s revenues largely based on price. The consequent importance of material quality, combined with low switching costs, favors buyers. Brand loyalty is of low importance here, as the product quality and price are the major indicators for the prospective buyer who is prone to switch to new solutions, as long as price and quality of the product are competitive. Overall, buyer power in the global construction material market is assessed as moderate.



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Supplier power

Figure 6: Drivers of supplier power in the global construction materials market, 2009




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The production and supply of construction materials is energy intensive, and so the key suppliers to that market are companies providing fuels, such as natural gas and coal. In a majority of countries, the gas and oil markets are dominated by a small number of large, highly vertically integrated companies. The oil and gas sectors in certain regions of the world are dominated by a few major corporations like, for example in China, the oil market is dominated by the three large state-owned oil and gas holding companies: CNPC, Sinopec and CNOOC. A similar situation exists in the US with the two giants Exxon Mobil Corporation and ConocoPhillips, whilst the UK retail gas market is dominated by three leading players: Centrica, SSE and Scottish Power, who together account for around 60% of the market. The large-scale nature of these companies, along with their low numbers, serves to increase supplier power in this market in almost all regions. Manufacturers frequently source vital raw materials, like clay and limestone, from their own quarries, and this backwards integration reduces supplier power. For building materials that require limited processing - sand, gravel, and so on - important suppliers include the manufacturers of quarrying machinery. As this is a specialized market, suppliers are similarly low in number, enhancing supplier power somewhat. Building materials rely on the physical and chemical properties of inputs and substitute raw materials for this market are consequently difficult to find, although the impact of this factor is minimized by vertical integration. Building materials are high volume, low margin products that are costly to transport in bulk. This gives some power to transportation suppliers, such as freight railroads. Overall, supplier power is assessed as moderate.



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New entrants

Figure 7: Factors influencing the likelihood of new entrants in the global construction materials

market, 2009


Entry barriers to the global construction materials market include: high capital outlay and fixed costs involved in setting up production plants. It is uneconomical to make these materials except in high volumes and local production is often preferable in order to reduce transport costs. Thus, gaining access to suitable quarries may also constitute a barrier to entry. However, in the highly commoditized building materials market, end-users have low switching costs and the regulatory framework in the majority of countries is also fairly undemanding. These factors, along with recent deceleration in growth rates present in most countries, serves to discourage new entrants. Overall, the threat of new entrants is strong.



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Substitutes

Figure 8: Factors influencing the threat of substitutes in the global construction materials

market, 2009


Some building materials may be substituted with others, like: steel, glass, stone, plastics, or fabricated building products. Even if these substitutes cannot replace building materials completely, they may act as partial substitutes (for example, many buildings can be constructed from stone as well as from reinforced concrete or from prefabricated wooden blocks). However, switching costs are fairly high - construction projects have to be designed with specified materials and regulations may mandate certain materials to be used. In some applications, a theoretical substitute may be too costly, time-consuming, or difficult to use in practice. Overall, the threat of substitutes is assessed as moderate, but is likely to be lower in particular market segments.



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Rivalry

Figure 9: Drivers of degree of rivalry in the global construction materials market, 2009


For a given product type, market players are fairly similar to each other in size and business structure. Having entered the market by acquiring quarries and setting up extensive, product-specific manufacturing facilities, exit costs are likely to be high. As these materials are high volume commodities, it is in manufacturers' interests to keep sales up and inventory down thus storage costs may also be high. Therefore, the rivalry in capturing a healthy share of the market is intense. The rivalry in this market assessed as strong overall.

LEADING COMPANIES


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LEADING COMPANIES

CRH plc

Company Overview

CRH is engaged in the manufacturing of primary materials and building products along with the distribution of building materials. The group has operations in 35 countries spread across 3,700 locations. The company primarily operates in North America and Europe. It is headquartered in Dublin, Ireland, and employs about 93,500 people.

The company recorded revenues of E20,887 million ($30,731.9 million) during the financial year ended December 2008 (FY2008), a decrease of 0.5% compared to 2007. The operating profit of the company was E1,841 million ($2,708.7 million) in FY2008, a decrease of 11.7% compared to 2007. The net profit was E1,262 million ($1,856.8 million) in FY2008, a decrease of 12.2% compared to 2007.

Key Facts

Table 4: CRH plc Key Facts

Head Office CRH plc Belgard Castle Clondalkin Dublin 22 IRL Phone 353 1 404 1000 Fax 353 1 404 1007 Web Address http://www.crh.com Revenue / turnover (EUR Mn) 20,887.00 Financial Year End December Employees 93,500 New York Ticker CRH Irish Stock Exchange Ticker CRH


LEADING COMPANIES


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Business Description

CRH manufactures and distributes primary materials and building products for the construction industry. The group operates in 35 countries in Europe and North America.

The group's operations are divided into four divisions: Europe Materials, Europe Products and Distribution, Americas Materials; and Americas Products and Distribution.

The materials division in Europe provides primary materials such as cement, aggregates, asphalt and readymixed concrete as well as value added manufactured products to residential, infrastructure and institutional customers. The division operates in 19 countries at over 550 locations. Ireland, Poland, Finland, Switzerland, Spain, Portugal and Ukraine are the major markets.

The products and distribution division in Europe provides products for residential, infrastructure and institutional customers. The division is organized into three categories of related manufacturing businesses and distribution. The manufacturing groups provide concrete, clay and other building products. In concrete products category, the company provides architectural, structural, utility, sand lime brick products. In the clay products category, the group provides products in the UK, Netherlands and Germany. In the building products category, CRH provides insulation, fencing and security, daylight and ventilation, construction accessories and new platform products. Distribution encompasses builder merchants and do-it-yourself (DIY) stores. The division operates in 20 European countries across 1,240 locations with Benelux, France, Switzerland, the UK and Germany accounting for the bulk of sales.

LEADING COMPANIES


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The Americas Materials division is organized into six principal regional business units all in the US; New England; New York/New Jersey; Mid-Atlantic region (comprising operations in Pennsylvania, Delaware, Michigan and Virginia); the Central region (which encompasses operations in Ohio, West Virginia, North Carolina, Kentucky and Virginia); APAC (with operations in western North Carolina, eastern Tennessee and Virginia); and the West (comprising operations from Washington on the Pacific coast across to Minnesota and down to New Mexico). The division is a major producer of aggregates, asphalt and readymixed concrete in the US, with operations in 44 states and has over 1,400 operating locations.

The Americas Products and Distribution division operates in over 597 locations in the US and has a significant presence in Canada. The division products includes architectural products, precast, glass and distribution products. The division is a leading producer of clay tile products in Argentina and operates glass fabrication businesses in Argentina and Chile.

*These activities comprise six reporting segments: Americas materials, Europe distribution, Europe materials, Europe products, Americas products and Americas distribution.

LEADING COMPANIES


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SWOT Analysis

Overview

CRH is engaged in the manufacturing of primary materials and building products along with the distribution of building materials. The group holds the leading position in aggregates and ready-mix concrete market in Western Europe. CRH is the largest supplier and producer of cement in the Republic of Ireland, accounting for approximately 55% of cement market demand in Ireland. CRH's strong market position increases its bargaining power, bestows economies of scale and provides significant levels of brand awareness. However, intense competition in the industry adversely affects the company's market share and revenues and also erodes the operating margins.

Table 6: CRH plc SWOT Analysis

Strengths

Leading market position

Strong manufacturing and distribution capabilities

Weaknesses

Downgraded credit rating impacting financing options

Significant debt levels

Opportunities

Expansion in China

Growing Polish construction market

High growth estimated in India

Threats

Competitive environment

Rising labor costs

Environmental regulations

Source: Datamonitor D.A.T.A.M.O.N.I.T.O.R

LEADING COMPANIES



CRH plc Strengths

Leading market position

CRH enjoys a leading position in many business segments across various geographies. The group holds the leading position in aggregates and ready-mix concrete market in Western Europe. CRH is the largest supplier and producer of cement in the Republic of Ireland, accounting for approximately 55% of cement market demand in Ireland. In Spain, CRH has leading regional positions in aggregates, ready-mixed concrete and precast concrete products. It is leading cement, aggregates and ready-mixed concrete producer in Portugal and a leading cement producer in Tunisia. CRH's strong market position increases its bargaining power, bestows economies of scale and provides significant levels of brand awareness. A strong market position also gives competitive advantage to the group, improving the chances of successfully launching new products in the market.

Strong manufacturing and distribution capabilities

The operations of CRH are supported by strong manufacturing capabilities and logistics network. The group manufactures and supplies a wide range of building materials through its subsidiaries in Europe and Americas. In Americas, CRH's Oldcastle Distribution subsidiary, trading primarily as Allied Building Products ("Allied"), comprises two divisions which supply contractor groups specializing in roofing/siding and interior products (wallboard, steel studs and acoustical ceiling systems). The subsidiary distributes these products through its 202 branches located in 31 US states and two Mexican states.

In the European market, distribution encompasses Professional Builders Merchants and "Do-It-Yourself" (DIY) stores. Professional Builders Merchants caters to the heavyside sector selling a range of bricks, cement, roofing and other building products mainly to small and medium-sized builders. CRH operates a network of 116 builders merchants locations in the Netherlands and 91 locations in France. In addition, CRH operates 131 Karwei and GAMMA DIY stores in the Netherlands and 19 GAMMA stores in Belgium.

Strong support activities help CRH in on-time delivery and huge cost savings with reduced warehousing and empty truck runs.

LEADING COMPANIES



CRH plc Weaknesses

Downgraded credit rating impacting financing options

CRH’s credit ratings of Baa1/BBB+ are on negative outlook with Moody’s Investors Services and Standard & Poor’s, respectively, and may be downgraded from current levels. The loss of an investment grade rating affects the cost of borrowing. It also makes it more difficult and costly for the company to access the debt capital markets for funds that may be required to implement the company’s business plans and achieve growth objectives. Any further downgrading in rating by these evaluation agencies could adversely affect the availability of financial resources and increase its credit risk.

Significant debt levels

CRH has incurred significant amounts of debt in order to finance its business and ongoing acquisition program. The group’s net debt increased at a compounded annual growth rate (CAGR) of 16% during 2006-08. As of FY2008, CRH had outstanding net indebtedness of approximately E6.1 billion ($8.1 billion). A significant portion of CRH’s cash generated from operations is dedicated to the payment of principal and interest on its indebtedness. In 2008, this portion was 22% (2007: 17%). Moreover, increased debts could limit the group’s ability to obtain additional financing for working capital or capital expenditures.

LEADING COMPANIES



CRH plc Opportunities

Expansion in China

CRH has recently increased its focus in emerging markets like China. In January 2009, the group expanded its presence in China by acquiring a 26% shareholding in the Jilin Yatai Group's cement operations (Yatai Cement) in January 2009, for E224 million ($307 million). Yatai Cement is one of the leading players in the north eastern provinces and is amongst top 10 cement suppliers in China. The International Monetary Fund (IMF) expects strong growth in China in 2010. This acquisition would enable the group to leverage the positive outlook and strengthen its topline.

Growing Polish construction market

The Polish construction and engineering industry grew by 14% in 2008 to reach a value of $46.3 billion. The non-residential building segment proved the most lucrative for the Polish construction and engineering industry, generating 58.6% of the total revenues. In 2013, the Polish construction and engineering industry is forecast to have a value of $80.4 billion, an increase of 73.7% since 2008. CRH produces, distributes, and markets cement, ready-mix concrete, aggregates, and related construction materials to the Polish construction market. Strong growth in the Polish construction market provides an opportunity to the company to increase revenues and in turn enhance its profitability.


The cement industry in India has witnessed steady growth in recent times. Cement consumption grew by 8% in 2009. Cement dispatches (including exports) for the 11 months ended February 2009 were at 162.89 million ton; this represented a 7.2% growth over the same period last year. The industry demand is expected to grow 6-7% in the financial year ending March 2010. In addition, the Indian economy is estimated to record a growth of 6.5% in 2010 which will be the among the highest growth rates in the world. CRH expanded its reach in India by acquiring a 50% shareholding in My Home Industries Limited, a privately-owned cement company in 2008. The group is well positioned to exploit the growing market in India and enhance its revenue generation capacity.

LEADING COMPANIES



CRH plc Threats


CRH faces intense competition in the building materials industry. The intensity of competition depends on various key factors such as the number of competitors in the market, the pricing policies and financial strength of those competitors, the total production capacity serving the market, the barriers to enter the market, the proximity of natural resources, general economic conditions and demand for construction materials within the market. The principal competitors of the group include Holcim, Cemex, Heidelberg Cement and Italcementi. The intense competition in the industry adversely affects the company's market share and revenues and also erodes the operating margins.

Rising labor costs

The cost of labor in Eurozone is rising fast as wage-earners try to keep up with inflation. In the Euro zone as a whole, hourly wages grew at a 4% rate in the second quarter of 2009, up from 3.7% in the first three months of 2008. Eurozone wages are now growing at nearly the rate of those in the UK and the US, where liberal labor market laws have allowed faster productivity and stronger compensation gains. CRH employs about 93,500 people. An increase in labor costs would adversely impact the group's margins.

LEADING COMPANIES



Environmental regulations

With the increase in global warming, environmental regulations have become more rigid in recent years. In 2005, one of the most important developments in this area has been the introduction of the Kyoto Protocol for the reduction of greenhouse gases. The Protocol calls on industrialized countries to reduce their greenhouse gas emissions level by 5.2% on an annual average during the 2008-2012 period, compared to emission levels in 1990. Another important development in 2005 took place when the US environmental protection agency (EPA) issued a "clean air interstate rule" (CAIR), according to which, by 2015 participating states have to reduce their sulphur and nitrogen oxides emissions by 70% and 60%, respectively, compared with 2003 levels. These regulations may impose new liabilities or increase operating expenses for CRH, either of which could result in a material decline in the group's profitability.

LEADING COMPANIES



Competitor Analysis

Aggregate Industries plc

Lafarge S.A.

Vulcan Materials Company

Hanson plc

Martin Marietta Materials, Inc.

Holcim Ltd.

CEMEX, S.A. de C.V.

Guardian Industries Corp.

LEADING COMPANIES



Company View

A statement by Kieran McGowan, Chairman of CRH is given below. The statement has been taken from the company's 2008 annual report.

A Strong Performance in Particularly Challenging Conditions

2008 was a particularly challenging year for CRH’s operations. Trading conditions in the majority of our markets were much more difficult than in recent years. Continuing negative economic developments accelerated as the year progressed and these, along with unprecedented financial market events, had a severe impact on business sentiment and on market demand. The weaker US Dollar also had a significant adverse effect on the translation into euro of our United States operating profits. Against the background of these most testing conditions, the Group produced a profit before tax of €1.6 billion and earnings per share of 233.1 cent.

While these results were below the record levels achieved in 2007, they represent a robust performance and demonstrate once again the benefits of our balanced spread of operations across geographic regions and construction sectors. They also reflect management’s emphasis on performance improvement, cost efficiency, overhead reduction and cash flow generation.

Profitability and Earnings

Profit before tax was €1.6 billion with earnings per share of 233.1 cent. These represented declines of 14% and 11% respectively compared to the preceding year. Cash earnings per share of 386.9 cent compared to 404.9 cent in 2007. Despite significant currency impacts, high energy cost inflation and particularly challenging 2008 market conditions, the Group has delivered average earnings per share growth of 14% per annum over the last five years.

LEADING COMPANIES



Dividend

CRH has a strong dividend history delivering 24 consecutive years of dividend growth at a compound annual rate of 14% up to and including 2007. The payout ratio has increased in recent years as a result of the Board’s decision to reduce the level of dividend cover over the three years 2006 to 2008 from 4.8 times to approximately 3.5 times. This year a final dividend of 48.5 cent is being recommended by the Board which, if approved by the Annual General Meeting on 6th May 2009, will result in a total dividend for 2008 of 69 cent, an increase of 1.5% over 2007, representing dividend cover of 3.4 times and a 25th year of dividend growth.

Development Activity

Total acquisition spend for 2008 was approximately €1 billion. First half expenditure of over €0.7 billion included the investment in My Home Industries announced in May, the acquisition of Ancon Building Products in April plus 35 other initiatives announced in the Development Strategy update of July 2008. Acquisition activity was deliberately curtailed in the second half of the year to a level of approximately €0.3 billion, reflecting the deteriorating economic environment and management’s emphasis on cash preservation. To date in 2009, we have completed our acquisition of a 26% shareholding in Yatai Cement, a leading player in the northeastern provinces of China and a top-10 cement supplier nationally.

With a challenging trading backdrop for many of our businesses, management’s emphasis is firmly concentrated on operational delivery and, as a result, development activity continues to be limited to acquisition opportunities that offer compelling value and exceptional strategic fit. This emphasis is also reflected in capital expenditure which has been adjusted to reflect the reduced demand environment. Despite significant additional expenditure on completion of the new cement plants in Ireland and the United States, 2008 capital expenditure has been held at approximately €1 billion, the same level as 2007.

LEADING COMPANIES



Financing Operations

The Group’s strong growth over the past four decades has been financed primarily from internal cash flow, supplemented by occasional equity injections from shareholders. It is now eight years since CRH’s last equity funding which raised €1.1 billion by means of a rights issue in March 2001. The period 2001 to 2008 has seen a significant expansion of CRH’s operations through a combination of organic growth and strategic value-enhancing acquisitions. Organic growth has been delivered through a relentless focus on operational excellence complemented by a significant programme of capital expenditure, which over the period has seen approximately €5 billion invested in expansion and efficiency projects. A further €11.5 billion has been spent on value-enhancing acquisitions and investments.

The combined expenditure of approximately €16.5 billion has been substantially funded by CRH’s strong internal cash flow and increased use of its debt capacity.

Maintenance of a prudent and strong balance sheet and a disciplined and rigorous approach to acquisition activity have long been core CRH financial principles and it is this conservative approach to balance sheet management and development which has resulted in CRH’s current strong financial position. The Board believes that CRH is well-positioned to benefit from the attractive acquisition opportunities which are beginning to emerge within its industry, and that it is appropriate to further strengthen CRH’s financial flexibility to ensure that the Company can take advantage, in its traditional long-established disciplined manner, of the likely increased flow of such development opportunities. The Board therefore decided in early March 2009 to raise additional equity via a 2 for 7 rights issue to help fund its ongoing expansion. The issue was well supported by existing shareholders and the amount of capital raised, net of expenses, was approximately €1.238 billion.

Share Repurchase Programme

The share buyback which was announced in January 2008 and limited to a maximum of 5% of the 547 million Ordinary Shares in issue at 31st December 2007 was subsequently terminated in light of the stresses in financial markets. A total of 18.2 million shares were repurchased, equivalent to 3.3% of Ordinary Shares in issue at end-2007, at an average price of €22.30 per share.

LEADING COMPANIES



Corporate Governance

A statement setting out CRH’s key governance principles and practices is provided on pages 44 to 47. The Board and Management of CRH are committed to achieving the highest standards of Corporate Governance and ethical business conduct and are satisfied that appropriate systems of internal control are in place throughout the Group.

Board and Senior Management

Liam O’Mahony’s nine-year tenure as Group Chief Executive proved him to be an exceptional business leader. He has made a huge contribution to the growth and development of the Group during his remarkable career both as Chief Executive and as a senior executive of the Group over 30 years. Liam has accepted an invitation to continue as a member of the Board and I strongly recommend his reelection to the shareholders. We are fortunate in having as his successor Myles Lee, whose outstanding performance both as Group Finance Director and a senior executive with the Group over a long number of years, bodes well for the future of CRH.

As announced in May 2008, Albert Manifold has been appointed Group Chief Operating Officer (COO) and joined the Board on 1st January 2009. He has held a variety of senior positions including Group Development Director and Managing Director of Europe Materials. The new position of COO, reporting to the Group Chief Executive, reflects a natural evolution of the organisation structure in CRH, given the continuing growth and development of the Group.

Glenn Culpepper succeeded Myles Lee as Group Finance Director and joined the Board on 1st January 2009. Glenn has held a variety of positions in CRH’s US operations including Chief Financial Officer of the Americas Materials Division for many years. In July 2008, Mark Towe, previously Chief Executive of the Americas Materials Division, succeeded Tom Hill as Chief Executive of CRH’s operations in the

LEADING COMPANIES



Americas and joined the CRH Board.

We would like to thank Tom for his major contribution to the growth of CRH over 28 years and as a member of the board from January 2002 until his resignation in June 2008.

The Board notes with sadness the death of our former colleague John Wittstock in November 2008 after a long illness. John made a significant contribution as a member of the Board from 2002 until 2006 when he stepped down for health reasons.

As provided for in the Company’s Articles of Association, Glenn Culpepper, Albert Manifold, Liam O’Mahony and Mark Towe are proposed for election at the Annual General Meeting on 6th May 2009. Also in accordance with the Articles of Association and best practice in relation to re-election of Directors, Bill Egan, Jan Maarten de Jong and Myles Lee will retire from the Board and seek re-election at the Annual General Meeting. I have conducted a formal evaluation of the performance of all Directors and can confirm that each of the Directors continues to perform effectively and to demonstrate commitment to the role.

Management and Staff

CRH’s management and staff have been the key element in differentiating the Group from its competitors. The strength and depth of our management team has been demonstrated once again by our ability to achieve a smooth succession process at senior management level from the exceptional talent levels within the Group. There is a unique culture of performance and achievement throughout the Group and this will ensure that even in the current exceptionally difficult economic environment CRH has the capacity to deliver superior performance. On behalf of the Board, I thank Liam O’Mahony, Myles Lee and all CRH employees for their commitment and loyalty to the success of the Group.

Conclusion

Management’s views on the outlook for 2009 are set out more comprehensively in the Chief Executive’s Review and the various Operations Reviews. While there are a number of positives with lower energy costs, interest rate reductions and the US infrastructure stimulus package, the overall outlook for 2009 is extremely challenging, given the severe impact of ongoing turmoil in financial markets across the world. Throughout this environment, our attention and efforts will be focused resolutely on ensuring that our businesses are strongly positioned, through cost reduction and cash generation measures, to deal with whatever trading circumstances may evolve.

LEADING COMPANIES



Company Locations

Head Office:

CRH plc

Belgard Castle

Clondalkin

Dublin 22

IRL

P:353 1 404 1000

F:353 1 404 1007

http://www.crh.com

Other Locations

CRH Europe Materials Shrewsbury House Cabinteely Dublin 18 IRL

Irish Cement Platin Drogheda IRL

CRH Europe P&D Einsteinlaan 26 2289 CC Rijswijk NLD

Premier Cement 16 Falcon Road Belfast GBR

Cementownia REJOWIEC Ul Fabryczna 1 22 170 Rejowiec Fabryczny POL

Rudus Asfaltti Linkokuja 7 FIN 01740 Vantaa FIN

LEADING COMPANIES



CEMEX, S.A. de C.V.

Company Overview

Cemex is one of the largest building solutions companies in the world that produces, distributes, and markets cement, ready-mix concrete, aggregates, and related construction materials. The company primarily operates in the Americas, Europe, Africa, the Middle East, Asia, and Australia. It is headquartered in Nuevo Leon, Mexico and employs about 56,791 people.

The company recorded revenues of MXP243,201 million ($22,055.9 million) during the financial year ended December 2008 (FY2008), an increase of 2.8% over FY2007. The operating profit of the company was MXP27,884 million ($2,528.8 million) during FY2008, a decrease of 14.1% compared to FY2007. The net profit was MXP2,278 million ($206.6 million) in FY2008, a decrease of 91.3% compared to FY2007.

Key Facts

Table 7: CEMEX, S.A. de C.V. Key Facts

Head Office CEMEX, S.A. de C.V.

Avenida Ricardo Margáin Zozaya 325 Colonia Valle del Campestre 66265 Garza Garcia

Nuevo Leon MEX Phone 52 81 8888 8888 Fax 52 81 8888 4417 Web Address http://www.cemex.com Revenue / turnover(MXP Mn) 243,201.00 Financial Year End December Employees 56,791 Mexico City Stock Exchange Ticker CEMEXCPO


LEADING COMPANIES




Cemex through a number of subsidiaries is engaged in production, distribution, and marketing of cement, ready-mix concrete, aggregates, and related construction materials. The company's products and services are customized to meet the needs of customers in home construction, improvement, and renovation to agricultural, industrial, and marine/hydraulic applications. The company has presence in more than 50 countries throughout the world.

It has a production capacity of approximately 95.6 million metric tons of cement per year. Further, the company has annual production levels of 77.3 million cubic meters of ready-mix concrete and 241 million metric tons of aggregates. In addition, the company's infrastructure includes 64 cement plants, more than 2,200 ready-mix concrete facilities, 493 aggregate quarries, 253 land-distribution centers, and 88 marine terminals.

Cemex operates through three business segments: cement; ready-mix concrete; and aggregates.

The cement segment generates its revenues by selling cement to individual customers, institutions and construction markets throughout the world. The segment produces different varieties of cement such as pozzolana portland, mansory, hydraulic and white portland.

The ready-mix segment develops and produces a number of concrete products for specific requirements such as building structures, stamping designs, textures, facilities with gem-free environment, insulating, fire-resistant and crack-resistant construction.

The company is also engaged in selling aggregates which are used to produce different types of ready-mix concrete and related construction materials.

Cemex has a Global Center for Technology and Innovation in Switzerland which designs new and enhanced construction materials, from cementitious materials such as cement, fly ash, and slag to ready-mix concrete, mortar, admixtures, aggregates, and asphalt. The Global Center for Technology and Innovation also evaluates and develops sustainable methods of construction, including the use of byproducts, wastes, and recycled materials across the company's core businesses.

LEADING COMPANIES



SWOT Analysis

Overview

Cemex is one of the largest building solutions companies in the world that produces, distributes, and markets cement, ready-mix concrete, aggregates, and related construction materials. It has a production capacity of approximately 96 million metric tons of cement per year, 77 million cubic meters of ready-mix concrete and 240 million metric tons of aggregates. Strong market presence enables the company to grab market share and boosts its revenue growth. However, prolonged economic slowdown in key markets could negatively impact the company’s topline.

Table 9: CEMEX, S.A. de C.V. SWOT Analysis

Strengths

Robust market position

Wide geographic presence

Strong customer focus

Weaknesses

Continuous decline in margins

Litigations

Opportunities

Increased focus on financial flexibility

Initiatives to enhance operational efficiency

Growing Mexican construction market

Threats

Economic slowdown in the US and Eurozone


Stringent environmental regulations


LEADING COMPANIES



CEMEX, S.A. de C.V. Strengths

Robust market position

Cemex is one of the leading building materials company with presence in more than 50 countries around the world. It is the third largest cement company in the world, based on installed capacity of approximately 95.6 million tons of cement per year. The company is also the largest ready-mix concrete company in the world with annual sales volumes of approximately 77.3 million cubic meters, and one of the largest aggregates companies in the world with annual sales volumes of approximately 241 million tons, in each case based on FY2008 sales volume. Cemex is also one of the world’s largest traders of cement and clinker, having traded approximately 9 million tons of cement and clinker in 2008. In addition, the company has extensive infrastructure comprising 64 cement plants, more than 2,200 ready-mix concrete facilities, 493 aggregate quarries, 253 land-distribution centers, and 88 marine terminals. Strong market presence enables the company to grab market share and boosts its revenue growth.

Wide geographic presence

Cemex has a wide and diversified geographic presence. The company operates in more than 50 countries throughout the Americas, Europe, Africa, the Middle East, Asia, and Australia. The company's global network enables it to optimize its worldwide production capacity by balancing supply and demand throughout its regional markets. In addition, the company has a diversified revenue stream from these geographies. For instance, the company generated 38.5% of its revenues from North America, 34.9% from Europe, 9.4% from Asia and Australia, 9.3% from the Central and South America and the Caribbean, 5% from the Africa and Middle East, and 2.9% from other regions. The wide geographical reach aids the company in catering to different emerging markets. Also, a diverse revenue stream limits the company's exposure to the risks associated with a particular region.

LEADING COMPANIES



Strong customer focus

Cemex has a strong focus on customers. The company tailors its products and services to suit customers’ specific needs. For example, the company’s water resistant concrete is ideal for bridges, dams, home exteriors, and other potentially damp environments. Whereas, the porous paving concrete is well-suited for sidewalks and roadways, because it allows rainwater to filter into the ground, reducing flooding and helping to maintain groundwater levels. In addition, Cemex focuses on more vertically integrated building solutions rather than separate products in order to deepen its customer relationships. For example, to pave highways and streets with its ready-mix concrete, the company designs the project, defines the best technical solution, offers different financial options, and executes the project in collaboration with local builders. CEMEX Connect, the company’s online customer resource center, has enabled the company to enhance customer satisfaction. Through CEMEX Connect the customers can track and view details of their pending orders, as well as their order history. They can also select the fastest and cheapest method of delivery. Furthermore, they can view, download, and print documents, including account statements, signed bills of lading, credit and debit memos, and invoices. Strong customer focus ensures customer retention and loyalty, which will in turn enhance the topline of the company.

LEADING COMPANIES



CEMEX, S.A. de C.V. Weaknesses

Continuous decline in margins

Cemex has witnessed a continuous decline in its margins in the recent times. The operating profit margin declined to 11.4% in FY2008 from 13.7% in FY2007 and 16.1% in FY2006. The decrease was mainly due to lower economies of scale resulting from lower volumes. The net profit margin declined to 0.9% in FY2008 from 11% in FY2007 and 13% in FY2006. If the trend continues further, it will have a material adverse effect on the company's result of operation.

Litigations

Cemex is involved in various significant legal proceedings. For instance, through the acquisition of RMC in 2005, Cemex assumed environmental remediation liabilities in the UK, for which the company has generated a provision of approximately £125 million ($182 million) as of FY2008. In addition, Cartel Damages Claims filed a lawsuit in the District Court in Dusseldorf, Germany against Cemex Deutschland, the company’s German subsidiary, and other German cement companies relating to alleged price and quota fixing by German cement companies between 1993 and 2002. As of FY2008, Cemex Deutschland had accrued liabilities regarding this matter for approximately E20 million ($28 million). Furthermore, as of FY2008, Cemex’s subsidiaries in the US have accrued liabilities specifically relating to environmental matters of approximately $43 million. Litigations such as these will adversely affect the cost structure of the company.

LEADING COMPANIES



CEMEX, S.A. de C.V. Opportunities

Increased focus on financial flexibility

Cemex has undertaken various initiatives in order to enhance its financial flexibility in changing market conditions. The initiatives include increased cost cutting, reduction in capital expenditures, refinancing of debt maturities and a continued divestment program.

As a part of its global cost reduction program, the company has made a significant temporary reduction in its capacity. It has suspended operations in 27 cement kilns, close to 300 ready-mix concrete plants, and almost 50 aggregates sites. Apart from this, Cemex has cut its total capital expenditures to $650 million in 2009 from $2,200 million in 2008. To achieve this reduction, the company stopped work on several major projects, and cancelled all new expansion projects. In January 2009, the company refinanced $2.3 billion of short-term facilities scheduled to mature in 2009 and early 2010 into two long-term syndicated facilities. These actions lengthened the average maturity of debt. As part of the divestment program, the company reached agreements to sell its operations in Austria, Hungary, and the Canary Islands. Cemex is also pursuing additional initiatives to divest other operations. The proceeds of these sales will be used for debt reduction. These initiatives will enable the company to regain financial flexibility and facilitate the company's growth plans.

Initiatives to enhance operational efficiency

Cemex has undertaken various initiates in the recent past to enhance its operational efficiency. For instance, the company has right sized its cement, ready-mix concrete, and aggregates production in line with market demand. It has also optimized logistics through the rationalization of its fleet, distribution centers, and raw-materials supply. Apart from this, Cemex has re-engineered its plants to enable the cement kilns to consume different types of fuel, including petroleum coke, coal, alternative fuels, fuel oil, and natural gas. This provides the company with the capability to adjust its fuel mix as energy prices rise and fall. This enabled the company to ease cost volatility, while energy commodity prices fluctuated dramatically. Consequently, the company’s energy cost per ton of cement produced increased only 16% in FY2008 compared with a 38% increase in the average price of crude oil. Strategic initiatives such as these will enhance the profitability of the company.

LEADING COMPANIES



Growing Mexican construction market

The Mexican construction and engineering industry grew by 0.9% in 2008 to reach a value of $33.8 billion. Civil engineering sales proved the most lucrative for the Mexican construction and engineering industry in 2008, generating 67.3% of the industry's overall value. In 2013, the Mexican construction and engineering industry is forecast to have a value of $43.1 billion, an increase of 27.6% since 2008. The company produces, distributes, and markets cement, ready-mix concrete, aggregates, and related construction materials to the Mexican construction market. Strong growth in the Mexican construction market provides an opportunity to the company to increase revenues and in turn enhance its profitability.

LEADING COMPANIES



CEMEX, S.A. de C.V. Threats


The economy of the US and Europe is likely to slowdown in the short to medium term. According to the IMF world economy outlook, while the GDP growth of the US economy is forecasted to slow down from 2% in 2007 to -2.6% in 2009, the GDP growth of Eurozone is forecasted to decline from 2.7% in 2007 to -4.8% in 2009. The profitability of the construction business is tied to the performance of the economy in which the company operates. Healthy economic growth is therefore a precondition for the positive growth rate of the business. If Europe and the US continue to display prolonged economic slowdown in the future, the company's business could be negatively impacted.


Cemex faces intense competition in the building materials industry. The intensity of competition depends on various key factors such as the number of competitors in the market, the pricing policies and financial strength of those competitors, the total production capacity serving the market, the barriers to enter the market, the proximity of natural resources, general economic conditions and demand for construction materials within the market.

The principal competitors of the company in the cement industry include Holcim, Lafarge, Heidelberg Cement and Italcementi. In the aggregate materials market, Cemex faces competition from independent operators and regional producers such as Vulcan Materials and Martin Marietta Materials and international players such as Lafarge, Holcim, Heidelberg Cement and CRH. The intense competition in the industry adversely affects the company's market share and revenues and also erodes the operating margins.

LEADING COMPANIES



Stringent environmental regulations

With the increase in global warming, environmental regulations have become more rigid in recent years. In 2005, one of the most important developments in this area has been the introduction of the Kyoto Protocol for the reduction of greenhouse gases. The protocol calls on industrialized countries to reduce their greenhouse gas emissions level by 5.2% on an annual average during 2008–2012 as compared to the emissions level in 1990. Another important development in 2005, took place when the US environmental protection agency (EPA) issued a 'clean air interstate rule' (CAIR), according to which, states have to reduce the allowable SO2 emissions by 70% and reduce nitrogen oxides emissions by 60%, by 2015 as compared to the 2003 levels. These regulations may impose new liabilities or increase operating expenses, either of which could result in a material decline in profitability of the company.

Competitor Analysis

Lafarge S.A.

HeidelbergCement AG

Holcim Ltd.

Martin Marietta Materials, Inc.

LEADING COMPANIES



Company View

A statement by Lorenzo H. Zambrano, Chairman and Chief Executive Officer of Cemex is given below. The statement has been taken from the company’s 2008 annual report.

2008 was a tumultuous year. The unprecedented financial and economic crisis that started in the United States spread to Europe, Asia, and other global markets, negatively affecting companies and industries worldwide. Many of our most important markets contracted faster and further than anyone anticipated, while competitive and cost pressures continued to grow. Consequently, after more than a decade of double digit growth, our results fell significantly short of our goals.

Our diversified portfolio and the supply- demand dynamics in most of our markets partially compensated for the downturn in the United States, Spain, and the United Kingdom and higher input costs. For the year, our net sales held steady at US$21.7 billion. Our EBITDA decreased 5 percent to US$4.3 billion. And our free cash flow after maintenance capital expenditures increased 1 percent to US$2.6 billion.

Turbulent times require decisive measures. To adapt quickly to changing market conditions, we have aggressively implemented an action plan to regain our financial flexibility and to make our global network more efficient, more productive, and more dynamic. While we cannot direct the trajectory of the markets, we are intensely focusing on managing the variables within our control. To align our company’s cost structure with the current market realities, we executed a global efficiency and cost reduction program during the fourth quarter of the year. Beyond business as usual, we revisited and reevaluated every aspect of our global operations network, applying the tools and disciplines that we have successfully used over the past two decades to integrate new acquisitions.

As a result of this program, we have captured close to US$700 million in permanent cost savings that we will fully realize in 2009. Additionally, we have adjusted the cost base of our company to meet new market conditions. Some of our cost reduction initiatives include budget cutbacks, capacity closures, and unfortunately, headcount reductions— which are painful, but essential.

LEADING COMPANIES



As a part of our plan, we are divesting assets from our business portfolio. In the second half of the year, we reached agreements to sell our operations in Austria, Hungary, and the Canary Islands. We are pursuing additional initiatives to divest other operations. The proceeds of these sales will be used for debt reduction. We are also significantly reducing our capital expenditure program. We will complete only those projects that are scheduled to come on line in early 2009 and will immediately contribute to our free cash flow. Most of our cement production and cement grinding projects are nearing completion. So, we expect our maintenance- and expansion capital expenditures for 2009 will not exceed US$650 million compared with approximately US$2.2 billion in 2008.

On the financial front, we have proactively worked with the financial community to craft a market-driven, win-win solution that aligns our liability profile with our new operating realities. As a result, we have extended our debt maturities, made significant progress in improving our credit profile, and moved towards providing our company with the financial capacity to implement our operating strategy on terms that are beneficial for all of our stakeholders.

Looking forward, we will continue to work to sustain our record of disciplined, profitable growth in the short, medium, and long term. However, given the volatile environment in which we are living, our focus in the short term is to regain our financial flexibility. To do this, we will maximize our free cash flow from operations and asset sales and deploy those resources to deleverage our business.

There are still many challenges ahead of us. The current global economic crisis is producing some of the toughest market conditions that our company and our industry have ever experienced. This means that we must make extra efforts to adjust our operations in the face of an evolving market environment, to anticipate changes in our customers’ circumstances, to improve our market offerings, and to ensure that we are the most efficient producer in our industry.

By taking the necessary measures today, we are focusing on what is needed to return our company to sustainable, profitable growth in the future. We have overcome big challenges in the past, and each time, we have taken the opportunity to emerge a stronger, more efficient, and more competitive company. I am confident that we will do so this time as well.

On behalf of the board and our management team, I thank our investors, our employees, our customers, and our suppliers for their continued support.

LEADING COMPANIES



Holcim Ltd.

Company Overview

Holcim is one of the leading producers of building material like cement and aggregates. The group is engaged in the manufacture, distribution and marketing of building materials, and also provides ready-mix concrete, asphalt and other value added services. The group operates in more than 70 countries. It is headquartered in Jona, Switzerland and employed 56,713 people as of December 2008.

The group recorded revenues of CHF25,157 million (approximately $23,306.5 million) during the financial year ended December 2008 (FY2008), a decrease of 7% compared to 2007. The operating profit of the group was CHF3,360 million (approximately $3,112.8 million) in FY2008, a decrease of 33.1% compared to 2007. The net profit was CHF1,782 million (approximately $1,650.9 million) in FY2008, a decrease of 53.9% compared to 2007.

Key Facts

Table 10: Holcim Ltd. Key Facts

Head Office Holcim Ltd. Zurcherstrasse 156 CH-8645 Jona CHE Phone 41 58 858 86 00 Fax Web Address http://www.holcim.com Revenue / turnover(CHF Mn) 25,157.00 Financial Year End December Employees 56,713 SWX Swiss Exchange Ticker HOLN


LEADING COMPANIES




Holcim is engaged in the manufacturing, distribution and marketing of building materials. Its primary product lines include cement, aggregates, ready-mix concrete and asphalt and also value added services. The group operates in 70 countries spanning North America, Latin America, Asia, Europe, Africa and Australia.

The group organizes operates through three business segments: cement, aggregates, and other construction materials.

The company’s cement division manufactures and sells cement and other related materials. Additionally, Holcim also offers a wide range of cement-based materials and also develops product lines with customized blends. As of 2008, the group's production capacity for cement was 194.4 million tons and had a total of 151 cement and grinding plants across the globe.

The aggregates product lines include crushed stone, gravel and sand. These form the main component for concrete and are also used in other applications like building roads and railways. The activities conducted under this segment are quarrying, preparing and sorting raw material. The group also recycles aggregates from concrete demolition material. At the end of FY2008, the group had 415 aggregate plants.

Other construction materials segment is mainly focused on the production and distribution of concrete and asphalt. This segment encompasses construction services, international trading services and other environmental services like waste management that are offered to the customers. As of 2008, Holcim had 1,217 ready-mix concrete plants and 125 asphalt plants.

LEADING COMPANIES



SWOT Analysis

Overview

Holcim is one of the leading producers of building material like cement and aggregates. The company focuses on continuous customer centric innovation which has increased customer loyalty and also enhanced its competitiveness. However, economic slowdown in the US and Eurozone, significant markets for the company impacted the construction industry negatively in turn affecting the demand for Holcim’s products.

Table 13: Holcim Ltd. SWOT Analysis

Strengths

Innovative products and value added solutions

Large geographical footprint

Presence across all segments of the value chain

Weaknesses

Decline in margins

Substantial long term financial liabilities

Opportunities

Growing Chinese construction material market


Increased demand for green building in the US

Threats


Declining Australian construction industry

Rising energy costs


LEADING COMPANIES



Holcim Ltd. Strengths

Innovative products and value added solutions

Holcim aims at differentiating its products by continuous innovation. A team of technicians provide several different end products by mixing different materials to produce an end product based on customer’s requirement. For instance, the New Zealand arm of Holcim developed a concrete product for a brewery using large quantities of recycled glass as an aggregate. For construction of Elbe Philharmonic Hall in Hamburg, the company provided the client with 30 different types of concrete mixes. Holcim has gained customer loyalty by providing client specific solutions. Oscan Niemeyer, a well-known Brazilian architect, is doing his third joint project with the company. In addition, Holcim also offers several value added solutions to its clients specifically for customers in emerging markets enabling them to build their own homes. For instance, in Indonesia the company has sold plans for solidly building the residences succeeding the aftermath of Tsunami. Innovation and services specialized to meet specific client requirements is a competitive advantage for Holcim and facilitates enhanced customer loyalty.

Large geographical footprint

Holcim has an established presence across several countries. It has businesses in over 70 countries and 2,000 locations. Such a large geographic footprint facilitates reduced business risk as the company is not vulnerable to adverse circumstances experienced in a single economy or few correlated economies. Holcim has strategically diversified its presence across the developed as well as emerging markets. With this strategy the company is taking advantage of high growth rates in the emerging markets compared to the matured markets in the developed economies. For instance, in 2008, the slowdown in the US, Europe was offset by Asian countries, Latin America, Africa and Eastern Europe. Therefore, large and diversified geographic footprint enables the company to increase revenues by tapping latent demand in high growth markets as well as ensures stability in earnings through diversification.

LEADING COMPANIES



Presence across all segments of the value chain

Holcim’s products and services can be categorized across almost all parts of the value chain of the construction industry which includes supply, sales channels and demand segments. In the supply part of the value chain, Holcim provides basic raw materials which include cement, mineral components and aggregates. The group then supplies the processed raw materials through traders, wholesalers, retailers, and direct sales which form the part of the industry's sales channels. These products through different sales channels are then served to the demand that exists in markets. The group also provides ready-mix concrete, concrete products, mortars, asphalt and consulting services. In addition, some of these segments are vertically integrated-for producing read-mix concrete or concrete products, the company’s aggregates and cement are used as raw materials. Holcim also has its own gravel quarries from which it quarries the raw materials as well. A presence across the value chain and vertically integrated segments provides the group with better operational control and aids in cost savings as it can adjust its capacity to the demand situation. Apart from this, Holcim also will have a large and diversified customer base as its presence across several sectors ensures catering to the requirements of larger audience.

LEADING COMPANIES



Holcim Ltd. Weaknesses

Decline in margins

Holcim has experienced reduced margins during FY2008. EBITDA margin declined across all the segments. They reduced to 27.3% from 32.6% in cement and mineral components and in the aggregates business the margins reduced from 20.3% to 19.5%. In addition, the EBITDA margin of other construction materials and services reduced from 7% to 4.3%. The company’s margins fell steeply and in case the margins shrink further, it will affect the profitability of the business adversely.

Substantial long term financial liabilities

Holcim has a substantial level of indebtedness. Although the group's long term financial liabilities decreased from CHF13,380 million (approximately$10,704 million) in 2005 to CHF12,470 million (approximately $10,402.9 million) in 2006, they again increased to CHF12,629 million (approximately $10,535.6 million) in 2007 and to CHF12,789 (approximately $11,847.7 million) in 2008. The group's long term financial liabilities are significant. The increasing debt could negatively impact the group's financial stability.

LEADING COMPANIES



Holcim Ltd. Opportunities

Growing Chinese construction material market

The Chinese construction materials market is recording a strong growth. The industry grew by 8.9% in 2008 to reach $213.4 billion. In 2013, the Chinese construction materials market is forecasted to reach $323.9 billion, an increase of 51.8% since 2008. Holcim has presence in China and has participated in the planned private placement of Huaxin Cement through which it wants to further strengthen its strategic partnerships and presence in China. The company is well positioned to exploit the growing construction material market in China and enhance its revenue generation capacity.


Holcim has increased its stake in its Indian subsidiaries Ambuja and ACC cements. The cement industry in India has witnessed steady growth in recent times. Cement consumption grew by 8% in 2009. Cement dispatches (including exports) for the 11 months ended February 2009 were at 162.89 million ton; this represented a 7.2% growth over the same period last year. The industry demand is expected to grow 6-7% in the financial year ending March 2010. In addition, the Indian economy is estimated to record a growth of 5.1% in 2009 and 6.5% in 2010 which will be the among the highest growth rates in the world.

Increased demand for green building in the US

Holcim’s eco-efficient cement products enable the builders to go for green construction and the relevant certifications. The green building trend has been increasing the US in recent past and is expected to increase further. According to industry sources, the green building industry is expected to grow at a rate of over 60% in 2009. This trend is expected to continue through 2013. Further, the existing brown buildings are being modified into new green buildings. In the Leadership in Energy and Environmental Design (LEED) certification category the existing buildings category was the fastest growing in 2008. Green buildings are increasingly mandated by municipalities, states and federal governments in the US. The company has specialized eco-efficient cement product line and scale to gain the competitive edge in catering to the cement requirements of those seeking LEED certification in future. Holcim can enhance its revenues by capturing this market in a scenario where the market for traditional products is shrinking in the US due to economic slowdown.

LEADING COMPANIES



Holcim Ltd. Threats


The economy of the US and Europe, where Holcim operates, is likely to slowdown in the short to medium term. According to the IMF world economy outlook, the real GDP growth of the US and Eurozone is expected to decline in 2009. The US and European economies were pressurized in 2008 and the growth rates have experienced a considerable slow down. While the GDP growth of the US economy is forecasted to slow down from 1.1% in 2008 to -1.6% in 2009, the GDP growth of Eurozone is forecasted to decline from 1% in 2008 to -2% in 2009.

The profitability of the construction business is tied to the performance of the economy in which the group operates. Healthy economic growth is therefore a precondition for the positive growth rate of the business. If Europe and the US continue to display prolonged economic slowdown, the group's business could be impacted negatively due to adverse trends in the construction industry in these geographies.

Declining Australian construction industry

The Australian construction industry is expected to witness a downturn in 2009. Both residential and non-residential construction would decline despite falling interest rates, extended first home buyer assistance and improving housing affordability. This is primarily due to lack of household and investor confidence, tightening credit standards and an uncertain economic outlook. In November 2008, residential building and finance crashed to the lowest level since 2002. The residential construction will contract by 4% or more in 2009. On the other hand, non residential building will contract by around 3.4%. Holcim has acquired CEMEX Australia to expand its product line in Australia, where the markets are shrinking. Weak Australian construction industry would act as a hindrance for the development opportunities to the company.

LEADING COMPANIES



Rising energy costs

The company's operations consume a significant amount of energy for the production of cement products. The various sources of energy account for about 40% of the production costs for the company. The cost of energy in many parts of the world has increased substantially in recent months. The oil prices have been steadily rising in the international markets. For instance, WTI (West Texas Intermediate) has risen from $40 per barrel in February 2009 to around $65 in May 2009. Further, the price of West Texas Intermediate (WTI) crude oil is expected to average $67 per barrel for the second half of 2009, an increase of about $16 compared with the first half of the year. In 2008, the energy costs for Holcim’s cement production increased by 20.1% impacting the margins which declined to 27.3% in FY2008 from 32.6% in 2007. Further increase in energy prices would result in higher operating costs for the company and this will have a negative impact on its margins.

LEADING COMPANIES



Competitor Analysis

Lafarge S.A.

CRH plc

HeidelbergCement AG

Italcementi S.p.A.

CEMEX, S.A. de C.V.

Boral Limited

CIMPOR - Cimentos de Portugal SGPS, S.A.

Ciments Français

Buzzi Unicem SpA

Taiheiyo Cement Corporation

The Siam Cement PCL

Ciments Français

LEADING COMPANIES



Company View

A joint statement by Rolf Soiron, Chairman and Markus Akermann, Chief Executive Officer of Holcim is given below. The statement has been taken from the company’s 2008 annual report.

In 2008, a long phase of higher-than-average economic growth rates came to an unexpectedly abrupt end. During the course of the year, the real estate crisis which began in the US triggered severe disruptions in the global financial sector which are now also being felt in the real economy. The fourth quarter saw a marked deterioration in the situation in Europe and North America in particular.

Holcim is holding its own in a difficult environment

The sharp economic slowdown has led to a recession both in North America and in parts of Europe, with the construction sectors of the US, Spain and the UK severely affected. Even though the global economy further lost momentum in the second half of the year, trends in the growth markets of Latin America, Africa, Asia and Eastern Europe were predominantly positive.

Even under these more difficult conditions, Holcim has held up well in 2008 with a full-year operating EBITDA of CHF 5.3 billion.

Europe once again made the largest contribution to the results. The Group companies in Central and Eastern Europe showed growth compared with the previous year, as did Garadagh Cement in Azerbaijan. In contrast, Holcim saw marked declines in its business in Russia and France, particularly in the fourth quarter. Holcim suffered its biggest setback in North America, where operating EBITDA was halved in comparison with 2007. Latin America posted good results, despite some deterioration in performance during the last three months of 2008, partly because of currency factors. Group region Africa Middle East also fared well thanks to strong construction activity in Morocco and Lebanon. The second largest contribution to EBITDA was made by Asia Pacific, due in large part to the results coming from the two Indian Group companies. Holcim Indonesia also experienced substantial growth.

LEADING COMPANIES



Holcim’s solidity is accentuated by the fact that the Group generated free cash flow of some CHF 2.6 billion in 2008. Thanks to a cautious financial policy, strong cash flow and strict management of net current assets, Holcim’s liquidity at the end of 2008 remained at a high level of CHF 5.6 billion. In combination with a strong balance sheet, this has served to maintain our solid rating.

Holcim has reacted quickly to a changing environment

The crisis in the construction sector has made plant closures and cost-cutting programs unavoidable. Throughout the Holcim Group, fixed costs were proactively adjusted in response to declining demand. In the markets most critically affected, more than 100 production locations across all segments were shut down. These include the three cement plants in the US and Spain that were permanently closed. To minimize the impact on its people, Holcim is seeking where possible to achieve the job cuts by means of palliative measures such as natural attrition or early retirement.

Well prepared for the future

It is uncertain for how long the weakness in demand will last. Nevertheless, Holcim remains confident based on a worldwide market presence, a portfolio of proven and innovative products and a low-impact and costconscious management of resources and energy. Above all, the Group can rely on a management which has been crisis-proven. The employees of Holcim will also continue to give their best during these difficult times.

Holcim will constantly review capacities in all segments and close more operations, if only temporarily, as demand should necessitate. Thus, the plants of Artesia and Mason City in North America will be additionally mothballed.

With the exception of strategically important expansions in growth markets and the completion of the plant on the Mississippi – in total approximately 25 million tones of cement capacity – no further new capital investments will be made to increase capacity. Additionally, spending on replacement and rationalization is presently being reduced to a minimum. A focused adjustment of fixed costs is in progress in all areas at the Group and the Group company level.

LEADING COMPANIES



This lower investment activity combined with financing measures both at the Group and the Group company level in the last few months, Holcim has succeeded in maintaining a high level of liquidity. We will continue the systematic implementation of this strategy and expect that, by year end, Group debt will remain at the previous year’s level on a like-for-like basis.

Environmental and social responsibility

Even amid the current turmoil, Holcim is standing by the principles of environmental and social responsibility.

In the 2008 Dow Jones Sustainability Index, Holcim was designated “Leader of the Industry” for the fourth year in succession and received, for the second time, the “Sector Leader” and “SAM Gold Class” accolades of the Sustainable Asset Management Group (SAM) in cooperation with PricewaterhouseCoopers. The partnership with the International Union for Conservation of Nature (IUCN) on the preservation of ecosystems has proven valuable and represents another step to sustainable economic activity. Holcim also makes a contribution toward sustainable construction through the Holcim Foundation for Sustainable Construction. In the current 2007 to 2009 competition cycle, 5,000 construction projects from around the world were submitted. This spring, an independent jury will award prizes to the three best sustainable construction projects selected from 15 regional winners.

Health and safety at work were systematically pursued under the slogan “Passion for Safety”. There are clear indications of improvements. The Board of Directors and the Executive Committee are making every effort to ensure that a comprehensive safety culture is effectively practiced throughout the Group.

Great demands are placed on employees of all levels, particularly during difficult times. Now and more than ever, Holcim needs its employees to stand by the company and demonstrate active commitment. The high degree of dedication shown by our employees is not something that Holcim takes for granted and it requires our recognition. The Board of Directors and the Executive Committee would like to sincerely thank all employees.

LEADING COMPANIES



Standing by our established dividend policy

Holcim has a policy of distributing one third of consolidated profit attributable to the shareholders of Holcim Ltd (CHF 1.8 billion in 2008) as a dividend. The Board of Directors has decided to maintain the payout ratio at this level. However, due to the difficult economic situation, the uncertainty over the future trend of the economy and the need to preserve liquidity, the proposal at the general meeting will be to pay the dividend in shares rather than in cash. Each shareholder will receive one tradable subscription right for every registered share held. Twenty subscription rights will entitle the holder to one share, which will be entitled to the dividend for the full 2009 financial year. The Board of Directors is convinced that this proposal is in the best interests of the company and its shareholders.

Outlook for 2009

2009 will be another difficult year for the construction and building materials sectors. Although government support programs have been announced, we have to expect a further decline in demand. However, it is clear that our industry will particularly benefit from an economic upswing.

Holcim offers the right products and services, and its corporate culture is customer-oriented. We are well positioned in all important markets. We give a high priority to a solid balance sheet and a high level of liquidity. We are convinced that we can emerge from the current economic cycle stronger than before, and that the “post-crisis Holcim”will be a better company than the “pre-crisis Holcim”.

In the absence of key forecast data on the trend of the global economy, the Board of Directors and the Executive Committee refrain from communicating any predictions about the Group’s performance in 2009. The focus will be on rigorous cost management and maximizing cash flow generation. Holcim’s main objective is to preserve the financial stability of the Group.

LEADING COMPANIES



Company Locations

Head Office:

Holcim Ltd.

Zurcherstrasse 156

CH-8645 Jona

CHE

P:41 58 858 86 00

http://www.holcim.com

Other Locations

Juan Minetti S.A. Casilla de Correo 16 AR-5101 Malagueño- Provincia de Cordoba ARG

Holcim (Australia) Pty Ltd Level 8 799 Pacific Highway Chatswood AUS

Cement Australia Pty Ltd Suite 1 Level 19 111 Pacific Highway NSW 2060 North Sydney AUS

Holcim (Vorarlberg) GmbH Brunnenfelderstrasse 59 A - 6700 Bludenz AUT

LEADING COMPANIES



Garadagh Cement OJSC Sahil Settlement Salyan Highway AZ-1083 Baku AZE

Holcim (Bangladesh) Ltd House 8 Road 14 Baridhara BD-1212 Dhaka BGD

Holcim (Belgique) S.A. Avenue Jean Monnet 12 Batiment 1 1400 Nivelles BEL

Holcim (Brasil) S.A. Rua Verbo Divino. 1488 Chacara Santo Antonio 04719.904 Sao Paulo BRA

Holcim (Bulgaria) AD BG-3040 Beli Izvor BGR

Holcim (Canada) Inc. 2300 Steeles Avenue West 4th floor L4K 5X6 Concord Ontario CAN

LEADING COMPANIES



Cemento Polpaico S.A. Av. El Bosque Norte 0177 Casilla 223 Correo 35 CL- Las Condes Santiago CHL

Holcim Management Services (China) Co. Ltd. China Central Place Unit 1208 Tower 1 81 Jian Guo Road Chaoyang District CN-100025 Beijing CHN

Holcim (Colombia) S.A. Calle 113 No. 7 - 45 Piso 12 Torre B Edificio Teleport Business Park CO - Santafe de Bogota D.C. COL

Holcim (Costa Rica) S.A. Apartado 4009 CR-1000 San Jose CRI

Holcim (Hrvatska) d.o.o. HR-52222 Koromacno HRV

Holcim (cesko) a.s Tovarni 296 CZ-538 04 Prachovice CZE

Cemento de El Salvador S.A. Avenida el Espino Urb. Madreselva Antiguo Cuscatlán La Libertad SLV

Holcim (France) S.A.S. Direction Generale France 8e etage 192 avenue Charles de Gaulle FR-92200 Neuilly-sur-Seine FRA

Holcim (Deutschland) AG Willy-Brandt-Strasse 69 D-20457 Hamburg DEU

Ambuja Cements Limited 106 Maker Chambers III Nariman Point Mumbai IND

LEADING COMPANIES



Lafarge S.A.

Company Overview

Lafarge produces and sells building materials primarily cement, aggregates, ready mix, concrete, gypsum wallboard, and related products primarily under the “Lafarge” brand.The company primarily operates in Western Europe, North America, Asia and Latin America. It is headquartered in Paris, France and employs about 77,994 people.

The company recorded revenues of E15,884 million ($22,151.8 million) during the financial year ended December 2009 (FY2009), a decrease of 16.5% compared to 2008. Sales were negatively impacted by lower volumes, foreign exchange and the scope of operations as some of the businesses were divested.The operating profit of the company was E2,250 million ($3,137.9 million) in FY2009, a decrease of 33.1% compared to 2008. The net profit was E1,046 million ($1,458.8 million) in FY2009, a decrease of 46.1% compared to 2008.

Key Facts

Table 14: Lafarge S.A. Key Facts

Head Office Lafarge S.A. 61 rue des Belles Feuilles BP 40 75782 Paris Cedex 16 FRA Phone 33 1 44 34 11 11 Fax 33 1 44 34 12 00 Web Address http://www.lafarge.com Revenue / turnover (EUR Mn) 15,884.00 Financial Year End December Employees 77,994 Paris Ticker LG


LEADING COMPANIES




Lafarge is a French manufacturer and seller of construction materials.The company operates across 78 countries through several subsidiaries, and joint ventures.

The company’s operations span across four business divisions: cement, aggregates and concrete, gypsum and other.

Lafarge’s cement division encompasses the operations of 120 cement, 32 clinker grinding and 8 slag grinding plants, with an annual production capacity of 203 million tons.The cement division has production facilities in 48 countries in 2009. The cement division produces and sells a range of cements and hydraulic binders for the construction industry, including basic portland and masonry cements and a variety of other blended and specialty cements and binders. Lafarge also offers several services, such as technical support in connection with the use of cements, ordering and logistical assistance to ensure timely delivery to the customers, plus documentation, demonstrations and training relating to the properties and appropriate use of different cements.The cement division’s customers are primarily concrete producers, precast concrete product manufacturers, contractors, builders and masons, as well as building materials wholesalers. The cement is used in three major segments of the construction industry which are residential, non residential construction and infrastructure projects. The company also engages in worldwide cement trading activities which helps Lafarge to meet fluctuations in demand in certain countries, without building plants that result in excess capacity. The trading activities are primarily conducted through the subsidiaries Cementia Trading and Marine Cement that acts mainly as an importer and distributor of cement in the Indian Ocean and the Red Sea countries.

LEADING COMPANIES



Aggregates and concretes also constitute an important part of the building industry. By the end of FY2009, Lafarge has production facilities and sales offices in 36 countries.The company’s businesses operated 597 aggregates quarries, which sold approximately 196 million tons of aggregates, and 1,176 concrete plants, which sold approximately 37 million cubic meters of concrete. The company also produces asphalt and pre-cast concrete products and provide road contracting and surfacing services.The aggregates and concrete division is vertically integrated with cement division supplying substantial volumes of cement to the concrete operations in several markets. Also aggregates operations supply a substantial volume of aggregates required for the concrete, asphalt and paving operations. Aggregates are mainly used as raw materials for concrete, masonry, asphalt and other industrial processes, and as base materials for roads, landfills and buildings.The primary aggregates Lafarge produces and sells are hard rock and also natural sand and gravel.The company processes and sells recycled asphalt and concrete in certain markets. The aggregates and concrete is offered in the brands of Agelia, Artevia Color and Thermedia among others. In North America and the UK, Lafarge produces and sells asphalt for road surfacing and paving. Customers for concrete primarily constitute construction and road contractors ranging from major international construction companies to small residential builders, farmers and do-it-yourself customers. The company sells asphalt primarily to road contractors for the construction of roads, driveways and parking lots, as well as directly to state and local authorities.

Gypsum wallboard and other gypsum-based products are primarily produced to offer gypsum-based building solutions for constructing, finishing or decorating interior walls and ceilings in residential, commercial and institutional construction projects throughout the world, as well as for sound and thermal insulating partitions. Other gypsum-based products include industrial plaster, medical plasters, and self-leveling floorscreeds. By the end of FY2009, Lafarge operated production facilities in 30 countries. The company also operated 41 wallboard plants and 36 other plants which produced primarily plaster, plaster blocks, joint compounds or metal studs as well as three wallboard paper plants. Lafarge’s principal gypsum product is wallboard which is produced in a variety of standard lengths, widths and thicknesses and with a variety of characteristics depending on the intended use of the board. At the end of FY2009, Lafarge’s consolidated businesses operate and own 21 gypsum quarries worldwide, including 15 in Europe. Gypsum wallboard products are primarily sold to general building materials distributors, wallboard specialty dealers, lumber yards in the US, decorating companies in growing markets and do-it-yourself home centers.

Other and holding activities, not allocated to the company’s core operating segments, are summarized in the “other” segment.

LEADING COMPANIES



Lafarge S.A. Strengths

Leading company across the business segments

Lafarge is a globally leading company across its business segment. The company is the leader in cement taking into various parameters such as account sales, production capacity, geographical positions, technological development and quality of service. Similarly, Lafarge is the second largest producer of aggregates and concrete and third largest producer of gypsum. Being a large company and a global player offers some key competitive advantages for the company. Most of the business segments it operates in are fragmented with very few large players to compete with. The global cement industry has been fragmented, with most markets served by local producers. Presently, there are just a handful of multinational cement companies, Lafarge being one of them. Cement production is capital intensive and being a large company Lafarge enjoys sufficient financial clout to enter new markets easily and effectively and at the same time sustain the competition. In case of aggregates and concrete industry also, the industry is just beginning to consolidate and Lafarge primarily faces competition from the independent players. Environmental and planning laws in many countries restrict new quarry development. In addition, excluding the cost of land and mineral rights, the plant and equipment costs for a new quarry range from around E2 million ($2.9 million) to E4 million ($5.6 million) for a small quarry to over E45 million ($62.8 million) for a very large quarry. In such a scenario, Lafarge has unique advantage due to its strong reserve positions in key markets. The gypsum segment is also highly fragmented and 75% of the production is from seven players, Lafarge being one among them. The company also enjoys strong market share positions in several significant markets. In cement division in North America, Lafarge is the market leader in Canada, with around 35% of the market, and number three in the US, with a national market share of around 13%. Lafarge is a market share leader in 2008 in several Western European, African and Asian countries as well. A large player in fragmented and local markets, therefore, offers several significant competitive advantages. Also, the strong market share position enables Lafarge to participate effectively in high growth markets as well as in developed markets as and when the economies recover.

LEADING COMPANIES



Geographically well-positioned company

Lafarge has presence in 78 countries across the globe with a well-established position in emerging markets.The company will be able to manage this risk by operating in geographically diverse markets, with a portfolio of operations both in developed markets such as Western Europe and North America and in emerging countries, thereby minimizing the exposure to risk in a given country. A key growth factor is the strong presence in the emerging markets which account for 78% of company earnings. Emerging markets in a complete contrast with the developed countries are high growth markets. For instance, despite the current economic and financial crisis, global cement demand grew by approximately 7% in 2009 and was supported primarily by growth in Chinese market. Therefore, diversification globally will reduce business risk and also increases the addressable market. A strong presence in emerging and growing markets will offset a slowdown in mature markets.

Strong research and development base

Lafarge is focusing on differentiating itself from the competitors by offering several unique products through internal research and development efforts. The company has one of the largest research centers in France with 240 people. Over 1,000 people worldwide are dedicated to R&D with an annual budget of over E150 million ($209.2 million). Several innovations have lead to a portfolio of several hundred patents for Lafarge.To offer customer centric products, Lafarge has entered several research collaborations with architects and institutes as well. Several products were introduced over the years like Ductal, Agilia, PLAtec, Synia, Chronolia and Extensia. Two new products, Thermedia and Pregymax were introduced in 2009 and Ductal solution for thermal bridges was also launched. Several of these products have unique characteristics. For instance, Ductal’s compressive strength is six to eight times greater than conventional concrete and its flexural strength is 10 times greater than conventional concrete.Thermedia is concrete contributing to energy efficiency of buildings and Agilia was the first self-compacting concrete. In case of gypsum in 2009, almost 15% of Lafarge’s sales were from new products. The company has built technical expertise over the years and has a strong history of new product roll out. These products offer key differentiation for Lafarge and its focus on R&D will enable to do so in the future as well. Also, the company is well positioned to replicate an innovation across the world to drive incremental revenues.

LEADING COMPANIES



Lafarge S.A. Weaknesses

Non-compliance with environment regulations led to huge penalties and will tarnish brand image

Lafarge North America and certain of its subsidiaries (LNA) were alleged to have violated US Clean Air Act. The company has entered a settlement with the EPA and a number of US states. Under this settlement, LNA is required to decrease emissions of sulfur dioxide and nitrogen oxide emanating from its US cement manufacturing plants by making the necessary investments over a period of five years. LNA has also agreed to pay a civil penalty of five million dollars and the settlement is still subject to court approval. Environmental concerns have been increasing in the recent past and companies that do not follow regulations suffer low reputation. Especially so in case of Lafarge where other companies in the industry are trying to enforce their superiority in terms of environmentally friendly practices. Such practices are given increased weight which choosing companies for sustainable public infrastructure projects. With regards to this, Lafarge’s brand image has been adversely affected. Specifically so as the company aims at building reputation for responsible environmental stewardship and land restoration, which will assists Lafarge in obtaining new permits more easily and encourages landowners to deal with Lafarge as the operator of choice. Therefore, such allegations not only result in additional expenses but also will tarnish Lafarge’s image. These allegations also hurt consumer confidence and will affect the growth of Lafarge adversely.

High unionization might have a negative impact on the employee related costs

Majority of Lafarge’s employees are represented by unions. At the end of 2009 the figure stood at 67% as compared to 65% in 2008. The labor wages have been rising in several countries in recent times. Also, the health care cost inflation is growing at a fast pace. Labor wages and health care are some of the issues that will be taken up by unions while negotiations. The trend of increase in both the costs might lead to higher demands and in case of non-compliance with the demands, the operations might be negatively affected due to labor strikes. Unionization of labor reduces the company’s bargaining power and will lead to increased costs or disrupted operations.

LEADING COMPANIES



Lafarge S.A. Opportunities

Strong growth of sustainable construction materials market

The demand for energy efficient, green and sustainable construction materials is expected to increase across the world. According to a new industry report, the market for energy saving green buildings technologies will expand from $144 billion in 2009 to $277 billion in 2020, representing a 6.1% compound annual growth rate (CAGR).The US is the biggest market for the green building materials. From 2010 to 2015, the total US green building market value is estimated to increase from $71.1 billion to $173.5 billion representing a compounded annual growth rate (CAGR) of 19.5%. Lafarge has been focusing on developing green and energy efficient construction materials. Over 50% of the company’s R&D budget is dedicated to sustainable development requirements. Additionally, Lafarge aims to target its innovation potential is geared towards creating solutions for sustainable construction in both mature and emerging countries. Improved energy efficiency in buildings is a key priority of the research conducted. Amid global turndown and uncertainty in the construction market, the popularity of the green building trends specifically in the slow growing developed economies will provide a growth opportunity for Lafarge. The company’s focus on related R&D and launching new products like Thermedia in lines with the trend will enable it to drive revenues.

LEADING COMPANIES



Exposure to high growth markets will boost revenues

Lafarge has been pro-actively establishing itself in the high growth markets. Asia's construction activity, led by China is expected to expand by 6% in 2010 after slowing to 2.5% in 2009.The Middle East is another region where high investments are expected. Due to these factors, notwithstanding production outstripping demand, the Middle East cement industry is poised for recovery as regional governments boost spending on construction projects. According to industry reports, with the region's total $3 trillion worth of projects, there will be sufficient demand to fuel growth of the cement companies in the gulf states even if just half of the projects continue as planned. Saudi Arabia has like other nations, boosted spending on construction projects to underpin economic growth and an estimated $5.6 billion is approved for construction projects in Saudi Arabia in 2010. UAE continues to enjoy around 10—12% growth in annual cement demand despite the global economic slowdown. Furthermore, the margins in this region are higher due to the high demand for cement. For instance, gross margins for producers in Saudi Arabia averaged 53.5% in 2009, compared with an international industry average of 32%. African economy is also estimated to witness high spending on construction.

For 2010, cement volumes in emerging markets will continue to drive demand and emerging markets of Asia and other regions are estimated to represent 77% of the worldwide market in 2010. In 2009 Lafarge derived about 52% of the revenues from the emerging markets. The company also has substantial presence in Middle East and Africa which accounted for 42% of Lafarge's operating profit in 2009. Furthermore, Iraq has awarded the UK investment and private equity company MerchantBridge a contract to upgrade a large cement factory. Lafarge in partnership with MerchantBridge operates a plant in Iraq and aims to produce 1.8 million tons of cement a year by 2013. In China, one of the world’s fastest growing markets, the company operates a joint venture with Hong Kong based company Shui On.This joint venture is currently the market leader in southwest China and also operates in Beijing. Lafarge is well positioned to participate in these high growth emerging economies.

LEADING COMPANIES



Spending for sporting events to drive construction

Several sporting events hosted are expected to drive the construction activity. Selection of France as the host of the 2016 European Championships has provided French construction sector with several opportunities. Four stadiums will be built and a further eight will be renovated, for a total investment of E1.7 billion ($ 2.09 billion). The projects on a total of 12 sites will receive about E150 million ($209.2 million) of public money. Lafarge has strong market position in France and is well positioned to participate in the construction activity.

Brazil hosting 2014 FIFA world cup and Rio de Janeiro’s 2016 Olympic games are the other sporting events which will boost construction. Industry reports estimate $52 billion for developing the necessary infrastructure like stadiums construction, transport system, roads and highways, airports, electric power network expansion, telecommunication networks, water and waste in addition to contracts for the staging of the event.The 2016 Olympic Games in Rio de Janeiro will require extra investments of $11 billion for the same purposes. An investment of $75.5 billion is estimated in the urban infrastructure, including stadium construction or rebuilding. These investments are expected to lift the construction sector in Brazil.

Lafarge in 2010 sold its 17.3% stake in Cimpor to Votorantim and will receive Brazilian cement assets in exchange. With these assets, Lafarge will become one of Brazil’s top three cement operators with seven million tons capacity. Through this transaction, Lafarge was able to unwind its minority stake in Cimpor while strengthening its position in Brazil. The company will now be able to establish new positions in fast-growing regional markets at the same time reinforce its presence around Rio de Janeiro, which has bright prospects in preparation for the sporting events. The growth in the construction in France and Brazil will trigger demand for Lafarge’s market facilitating top-line growth.

LEADING COMPANIES



Lafarge S.A. Threats

The US and European construction markets continue to remain sluggish

The construction spending in the US and European continues to remain weak in 2010. Total construction spending in the US is expected to fall 13.1% in 2010, following a 13.6% drop in 2009, marking the fourth consecutive year of construction activity declines. Declines are expected to slow in residential construction, but the rate of decline in nonresidential construction is expected to jump from 9% in 2009 to 21.7% in 2010. The construction spending in the European countries has been declining owing to the economic downturn. The construction market in Western Europe is expected to decline 2.1% in 2010 after a steep fall of 9.1%in 2009. Eastern Europe faces a similar situation as Western Europe, though more moderate, with the construction market expected to decline 1.1% in 2010 after falling 4% in 2009. Despite having greater construction needs than Western Europe, Eastern Europe's construction growth is estimated to be held back by weak demand for its exports and diminished access to credit. Lafarge has high exposure to these declining markets. 12% of the cement production is from Western Europe and North America respectively. The majority of the company’s aggregates, concrete and asphalt operations are located in Western Europe and North America as well. Lafarge’s sales in Northe American and European markets recorded a double digit drop in 2009 mirroring the sluggish construction sector in these markets. Negative trends in 2010 will further impact the revenues from these key markets adversely affecting the revenues.

LEADING COMPANIES



Rising energy costs will impact margins negatively

The production process of cement exposes the company to the threat of rising energy costs. While producing cement 31% of the costs are the energy costs and are the highest percentage of the total cost and therefore, increase in energy will impact the cost structure adversely. The industry reports indicate rise in crude which is estimated to touch $105 next year, with $150 in sight by 2014. Approximately 1.7 billion consumers in emerging markets with a per capita income of $5,000 to $20,000 are waiting to buy cars, air-conditioning units, or white goods, which will increase the demand for oil and in turn is likely to drive up the cost of energy. While in some countries Lafarge’s pricing enabled it to pass on the energy costs to the customers, in some cases it has affected the operating margins. For instance, in Germany, cost reductions actions and price increase did not fully offset the effect of the higher energy costs and the decrease in volumes which has led to a decline in operating income. Also, on a continued basis Lafarge will not be able to effectively pass on the energy costs considering the business is cyclical and any down turn will severely impact the prices of construction materials. Rising costs of energy will pressurize margins affecting the profitability.

LEADING COMPANIES



Competitor Analysis

The following companies are the major competitors of Lafarge S.A.

HeidelbergCement AG

Holcim Ltd.

Italcementi S.p.A.

CEMEX, S.A. de C.V.

National Gypsum Company

Vulcan Materials Company

Buzzi Unicem SpA

Taiheiyo Cement Corp

Votorantim Celulose e Papel SA

Knauf Gips KG

Saint-Gobain plc

LEADING COMPANIES



Company View

An excerpt from the Operating and financial review and prospects section is given below. The statement has been taken from the company’s Annual Report for FY2009.

Summary of our 2009 results

In a challenging year, the Group has successfully completed the action plan designed to strengthen its financial structure announced in February 2009. We have achieved solid cash generation and significant cost savings that lowered debt and supported operating margins.

• Our Free cash flow, at 2,834 million euros, showed a 34% improvement.

• Sales were down 17%, due to lower volumes in Europe and North America, foreign exchange, and the scope impact of operations divested.

• Volume declines slowed in the fourth quarter on a like-for-like basis, despite the impact of adverse weather conditions.

• In emerging markets, current operating income rose on a like-for-like basis, excluding Central & Eastern Europe.

• Our Cement EBITDA margin remained resilient at over 30% for the year.

• We exceeded the action plan to strengthen our financial structure:

- We achieved cost reduction above commitment, with 230 million euros in structural savings, - Capital expenditure was reduced by over 1 billion to 1.6 billion euros,

- Proceeds from divestments reached 919 million euros,

- Working capital was reduced by more than 1 billion euros.

LEADING COMPANIES



Trend information & 2010 perspectives

Emerging markets continue to show strength and Lafarge forecasts that cement volumes in these markets will continue to drive demand in 2010. For developed markets, the Group expects that demand will start to recover slowly during the second half of the year. Overall, the Group expects cement volumes in its markets to increase between 0 and 5% in 2010. Pricing is expected to remain solid for the year in most of our markets.

The Group’s efforts to promote cash generation and support margins will continue in 2010 through strict cash control and an additional 200 million euros target of structural cost savings. We will continue to prune our portfolio of assets, and target disposals in the range of 300 to 500 million euros.

Our development program has already added cement capacity in markets providing solid growth potential, enabling Lafarge to capture this growth.

Lafarge’s development in emerging markets, its promotion of innovative products, and its focus on cost reduction are strong foundations from which to benefit from the economic recovery and return to earnings growth.

LEADING COMPANIES



Company Locations

Head Office:

Lafarge S.A.

61 rue des Belles Feuilles

BP 40

75782 Paris Cedex 16

FRA

P:33 1 44 34 11 11

F:33 1 44 34 12 00

http://www.lafarge.com

LEADING COMPANIES



Other Locations

Aggregates & Concrete Division Headquarters 61 rue des Belles Feuilles BP 40 - 75782 Paris Cedex 16 FRA

Gypsum Division Headquarters 500 rue Marcel Demonque Pole Technologique Agroparc F-84915 Avignon Cedex 9 FRA

Orebro Kartongbruk AB Bruksgatan 18 SE- 70130 Orebro SWE

Lafarge Aggregates Watermead Business Park Syston Leicester LE7 1WA GBR

Lafarge Cement UK Portland House Bickenhill Lane Birmingham B37 7BQ GBR

Lafarge Gyvlon Ltd 221 Europa Boulevard GB - WA5 7TN Warrington - Cheshire GBR

Lafarge Plasterboard Ltd Marsh Lane Easton on Gordano Bristol BS 20 ONF GBR

Lafarge Plasterboard Ltd. (Ireland) Unit 38 Fonthill Industrial Park Clondalkin Dublin 22 IRL

LEADING COMPANIES



Almeria Gypsum S.A. Carretera Nacioal 04270 Sorbas (Almer ia) 42 71 Espana ESP

Lafarge Cementos Calle Orense 70 ES-28020 Madrid ESP

Lafarge North America 12950 Worldgate Drive Suite 500 Virginia 20170 USA

Lafarge Bresil AV. Almirante Barroso BR- 20 031- 000 Rio De Janeiro BRA

Lafarge Gypsum Brazil Av. Almirante Barrosa 52 15° andar - Centro BR-20031 Rio de Janeiro BRA

Lafarge Cemento S.A. de C.V. Edificio Arcos Paseo de los Tamarindos 400 Edif. Arco 1 Of 6 Col. Bosques de las Lomas C.P. 05120 Deleg. Cuajimalpa MEX

Honduras Cement Colonia las Torres Edificio No. 1404 Comayaguela HND

Lafarge Cementos Selva Alegre S.A edif. Banco La Previsora 4 piso Of. 402 Quito ECU

Sociedad Industrial Romeral SA Av. Santa Rosa n°01710 Puente Alto – Santiago CHL

Lafarge Gypsum (Pty) Ltd Brackendowns 1454 Johannesburg ZAF

Lafarge South Africa - Cement Building 3 - Country Club Estate 21 Woodlands Drive Woodmead - 2144 Johannesburg ZAF

Lafarge Aggregates & Concrete China Room 308 Beijing Silver Tower No.2 Dong San Han North Road Chaoyang District Beijing 100027 CHN

MARKET FORECASTS



MARKET FORECASTS

Market value forecast

In 2014, the global construction materials market is forecast to have a value of $823.3 billion, an increase of 52.7% since 2009.

The compound annual growth rate of the market in the period 2009–14 is predicted to be 8.8%.

Table 18: Global construction materials market value forecast: $ billion, 2009–14 Year $ billion € billion % Growth2009 539.3 387.8 1.8%2010 578.9 416.3 7.4%2011 629.5 452.7 8.7%2012 685.5 493.0 8.9%2013 752.3 541.0 9.7%2014 823.3 592.1 9.4%

CAGR: 2009–14 8.8%


Figure 10: Global construction materials market value forecast: $ billion, 2009–14


APPENDIX



APPENDIX

Methodology

Datamonitor Industry Profiles draw on extensive primary and secondary research, all aggregated, analyzed, cross-checked and presented in a consistent and accessible style.

Review of in-house databases – Created using 250,000+ industry interviews and consumer surveys and supported by analysis from industry experts using highly complex modeling & forecasting tools, Datamonitor’s in-house databases provide the foundation for all related industry profiles

Preparatory research – We also maintain extensive in-house databases of news, analyst commentary, company profiles and macroeconomic & demographic information, which enable our researchers to build an accurate market overview

Definitions – Market definitions are standardized to allow comparison from country to country. The parameters of each definition are carefully reviewed at the start of the research process to ensure they match the requirements of both the market and our clients

Extensive secondary research activities ensure we are always fully up-to-date with the latest industry events and trends

Datamonitor aggregates and analyzes a number of secondary information sources, including: - National/Governmental statistics - International data (official international sources) - National and International trade associations - Broker and analyst reports - Company Annual Reports - Business information libraries and databases

Modeling & forecasting tools – Datamonitor has developed powerful tools that allow quantitative and qualitative data to be combined with related macroeconomic and demographic drivers to create market models and forecasts, which can then be refined according to specific competitive, regulatory and demand-related factors

Continuous quality control ensures that our processes and profiles remain focused, accurate and up-to-date

APPENDIX



Related Datamonitor research

Industry Profile

Construction Materials in the United States

Construction Materials in Europe

Construction Materials in Asia-Pacific

APPENDIX



Disclaimer

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